US cable firms need to deploy video on demand

Cable companies in the US need to roll out services fast, otherwise competing satellite companies will eat their lunch

By Kathryn Harris / BLOOMBERG , LOS ANGELES

Watch your wallet. In a race to gain market share, the rival cable- and satellite-television industries are going to offer you nifty ways to customize your TV viewing. The betting is that you'll pay more for personalized television, which means selecting programs to view at your convenience.

Already, the satellite-TV industry promotes digital video recorders, which can store anywhere from 40 to 400 hours of programming on a hard disc drive instead of tape, to be summoned at your leisure. EchoStar Communications Inc, the No. 2 satellite-TV company, says it has shipped more than 400,000 such devices.

To counterattack, the cable-TV industry finally is rolling out the video-on-demand service promised for two decades, capitalizing on cable's two-way capability. Using a remote control, subscribers can select from hundreds of programs to rent.

Cable-TV operators are nervously testing or tweaking their VOD offerings, because so much rides on consumer acceptance.

Video on demand is supposed to be a killer application for costly digital-cable service. Most cable customers still subscribe to traditional analog service, but digital cable -- which typically costs an additional US$10 a month -- is a prerequisite for video on demand, which could add another US$10 to US$15 to a subscriber's monthly bill.

If cable-TV operators botch the VOD rollout, there will be hell to pay with investors who helped bankroll the industry's US$50 billion upgrade to digital cable.

No one anticipated this moment more shrewdly than John Sie, the founder and chairman of Liberty Media Corp's Starz Encore Group, which operates 15 pay-TV channels in the US.

Almost three years ago, Sie dreamed up a way to protect and enhance his subscription pay-TV business in an on-demand environment. Sie pioneered the idea of subscription VOD, arguing that consumers would rather pay a flat monthly fee instead of a per-use charge to summon programming at will.

Betting on this premise, Sie struck exclusive long-term deals with Walt Disney Co and several other Hollywood studios for the right to make their movies available on demand to subscribers anytime during the period that Starz Encore airs the movies on its pay-TV channels.

It was a brilliant stroke, and soon prompted other cable-TV programmers to devise their own subscription-VOD plans.

Understandably, the industry listens when Sie speaks.

Last week, the Starz Encore chairman bluntly warned cable-TV executives that they have just 12 to 18 months to boost their share of the digital-TV business, or risk losing ground permanently to the rival satellite-TV industry, which is 100 percent digital. The satellite-TV industry added 2.5 million subscribers in 2001, while cable-TV growth was virtually flat.

Sie, projecting that 80 percent of the nation's subscriber-TV households will opt for digital television by the end of the decade, said cable operators will fall behind if they nab only 50 percent of digital-TV customers. To maintain or increase its base, the cable industry needs to capture 68 percent as the total number of subscriber-TV households climbs to a projected 111 million homes by 2010.

If cable operators sign up just half of the new digital households, the industry's subscriber count will fall by 8 million, Sie said Wednesday, when he addressed a Los Angeles conference hosted by the Cable & Telecommunications Association for Marketing.